Virgin Mobile Boosts Profits With High-End Phones

Virgin Mobile USA, which recently agreed to be acquired by Sprint for $483 million in stock, said today its sales for the second quarter were largely unchanged from the same period a year ago, at $290 million. However, its profits nearly quadrupled, to $21.8 million from $5.5 million in the second quarter of 2008. The company’s fortunes rose along with its hybrid cell phone plans, aka its monthly service plans, whose subscribers generate 15 times the value of pay-per-minute customers, according to Virgin CEO Dan Schulman.

Virgin introduced a $49.99 unlimited plan during the quarter, matching the competition, which represented 21 percent of all gross adds in May and June, but also lowered Virgin’s average revenue per user to $18.98, caused by customers trading down from the $79.99 unlimited plan. Customers taking the $49.99 unlimited offer have an ARPU of $56. The mobile virtual operator, which buys minutes on the Sprint network, also credited its profits to its customers trading up to data-ready phones. Schulman said in the release:

“Supporting this strategic customer focus is the sale of higher-priced handsets, which are associated with higher data usage, better churn, and significantly higher lifetime value. Our sales of handsets priced at $50 and above leapt to 25 percent of total sales from 15 percent in just one quarter, reflecting the success of our strategy and our commitment to high quality growth.”

Virgin is following in the footsteps of the big carriers, all of which have been boosting revenue and average revenue per user with phones that encourage data use. Even other prepaid companies such as Metro PCS are trying out high-end phones in the hopes that data will help boost their top line. And for prepaid carriers, offering high-end phones is a bit more of a stretch because most customers buy prepaid phones without a subsidy, turning a $100 smartphone into a potentially $400 purchase. Virgin, however, offers some of its high-end phones with a contract aimed at offsetting the cost. Virgin ended the quarter with 5 million customers, having added 535,558 during the April-June period, and saw its churn decrease to 5.3 percent.